How do we correct for depreciation on rental property?

[heevans2]

We bought a house in mid-2008 for our son and family to live in.  They lived there rent-free until his passing in late 2016. The house sat idle for a year and a half although we made some major improvements anticipating renting it later.  We rented the house in mid-2018 until our tenants moved on in mid-2022.  We then sold the house (in 2022).  Since the time the house was put into service as a rental (mid-2018) we have not taken any depreciation on it.  How do we figure (and correct) depreciation on our 2022 taxes?

[DavidD66]

According to the IRS:  "When you dispose of property that you depreciated using MACRS, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the depreciation previously allowed or allowable for the property."  The key word in your case is "allowable".  You will have to calculate the gain on the sale as if you did take the depreciation you were entitled to take, and pay ordinary income tax on that amount (to the extent that you had a gain on the sale).  In order to catch-up on the depreciation you have not take, you will need to file Form 3115 - Application for Change in Accounting Method.  Form 3115 is not supported by TurboTax.  I recommend you obtain the help of a local tax professional with experience filing Form 3115.